The ratings system that could change the TV industry forever

1960s television (wide crop)
1960s television (wide crop)
Steven Taylor—Getty Images

Television ratings have long been a bit of a crapshoot, though they’re much more accurate than they used to be. Even so, today’s TV shows are still judged using a combination of three surprisingly inelegant methods. The first involves asking a sample group of people to self-record their viewing habits in a diary, which are sent to Nielsen, the ratings company, for standardization and aggregation. The second involves “set meters,” small devices connected to home television sets to record viewing habits, transmitted nightly over a land line. The third involves “people meters,” also connected to home television sets, which record and transmit viewing habits once an individual logs in.

There are inherent weaknesses in such a system. The use of sample sets creates an abstraction, for one. If you were to watch the hit show Friends in 2003, you could watch it 51 weeks out of the year—but if you didn’t watch it the one week Nielsen (NLSN) asked you to report on your viewing habits, you couldn’t report it. (It’s only been since 2005 that Nielsen has even tracked time-shifted content recorded on digital video recorders.) Second, “audience” is limited to the television in the family room. If you prefer to watch Game of Thrones using the HBO Go mobile application, you’re left out of the recorded audience. Finally, the system remains an analog endeavor—a far cry from the Internet, where you can get extremely detailed metrics on usage. (Too detailed, in fact. Web publishers and advertisers continue to struggle with combining them into something that stands in for “audience.”)

Here’s the problem: TV ratings are incredibly important. They help networks understand which shows to renew for another season and which to drop. They determine what a show’s audience is and, in turn, inform the prices that networks charge advertisers for those spots. Nielsen’s ratings are the basis for much of the economics around television advertising. Any change in them has tremendous ramifications for a business that PricewaterhouseCoopers predicts to be worth nearly $82 billion in 2017.

A new partnership by Nielsen and Adobe, the San Jose software company, intends to fix some of the old system’s limitations without abandoning it altogether. A new system will allow the measuring of audiences across every device with an IP address, dramatically expanding the number of platforms Nielsen’s ratings incorporate and giving the company far more detailed viewing information than the old way would. The system, which combines Nielsen’s digital audience measurement tools with Adobe’s (ADBE) Analytics and Primetime products, will cover all kinds of content online, not just video.

It’s difficult to overstate the difference in the new system. Now, desktop and laptop computers, tablets, smartphones, gaming consoles, and over-the-top boxes will be incorporated into Nielsen’s ratings—meaning Netflix (NFLX), Hulu, CBS All Access (CBS), HBO Go, and even YouTube (GOOG) will be accurately incorporated into the dominant TV ratings system.

There is historical precedent for such a shift. In 1991, Nielsen SoundScan began tracking record store sales data using computers. Until then, the music industry trade magazine Billboard tracked sales by calling stores across the country and asking them. The new ratings system revealed that seemingly marginal genres such as alternative rock and hip-hop had much stronger sales than had previously been indicated. The shift altered Top 40 radio and became a boon to artists like Nirvana, Garth Brooks, and Metallica.

The new Nielsen-Adobe ratings system comes as people abandon the traditional television set to watch shows and movies on other devices. “TV has gone through its greatest transformation since the advent of cable,” said Jeremy Helfand, vice president of video solutions for Adobe. “But the market wants a single currency across all platforms.”

That’s good news for advertisers, who are always looking for more efficient ways to spend their dollars. The new ratings system could level the playing field in a way that allows content viewed through a smartphone to carry the same weight as the flat panel TV hanging on the wall. If a TV show becomes a hit because people are watching on HBO Go, for example, the system will ensure those eyeballs are tracked. And, as with Soundscan in the 1990s, the new TV ratings could be of great benefit to shows that perform well on digital platforms but lack traction on a conventional TV. (Community, a sort-of cult classic that consistently struggled on NBC before moving to Yahoo’s Screen network for its sixth season, is one example.)

“We are going to be able to count every single view,” said Monica Bannan, vice president of product leadership at Nielsen Business Media. “Any piece of content, video or non-video, TV or mobile device, will be able to be tracked.”

The new ratings system won’t do away with Nielsen’s old system for conventional TV, just complement it. It’s a bid for Nielsen to stay relevant as younger generations of viewers move away from the classic TV set.

“The development of audience measurement tools that combine the traditional ratings approach with online behavior analytics is an essential facet of building viable economic models,” said Greg Ireland, research director for multiscreen video at IDC. “They will be valuable for reaching consumers in a world in which engagement takes place on different devices and at different times.”

The new system (officially called “Nielsen Digital Content Ratings, Powered by Adobe”) will be formally introduced next year. ESPN (DIS), Sony Pictures Television (SNE), Turner Broadcasting (TWX), Univision, and Viacom (VIA.B) have indicated that they will subscribe to it. For good reason, too: Every television executive covets viewers between age 18 and 49, widely considered the most valuable audience for advertisers. The Nielsen-Adobe system allows them to prove that success to advertisers, and gives Nielsen a firm grasp on its role as the industry standard for generations to come.

Correction, October 23, 2014: An earlier version of this article misspelled the name of Nielsen Business Media’s vice president of product leadership. She is Monica Bannan, not Banner.

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